Osborne's spending cuts lay barely a scratch on the leviathan

Lights, camera…er. In terms of drama, today's spending review always was going to be a bit of a non event – largely leaked as it was, encompassing only the first year after the next general election and detailing "just" £11.5bn of additional spending cuts. If the Government is to reach its target of balancing the books by 2017/18, far bigger cuts will have to be imposed in the two years thereafter. The really tough choices have yet to come.

Indeed, listening to the Chancellor, you'd be hard pressed to find the cuts at all; there seemed to be at least as many new spending commitments as there were savings. Looking at the cuts actually announced, £5bn of them, or nearly half, are to come from unspecified "efficiency" savings. Believe them when you see them. Quite a bit of the rest come from ending "automatic progression" in public sector pay, a practice which helps explain why the public sector pay bill has continued to rise even in a period of substantial job cuts and an apparent pay freeze. No wonder the Treasury found negotiating these cuts so easy; it's just pie in the sky when you die.

As to what the Chancellor did announce, including the commitment to cap welfare spending for four years, you have to ask yourself why in two years time and not now? What's to stop the welfare cap coming in straight away? Presumably, it's the Prime Minister's commitment not to cut pensioner benefits this parliament, for it is hard to see where else effective cuts to the welfare budget are going to come from. In any case, the Government continues to be far too cautious in its approach.

That said, we shouldn't underestimate the scale of what's being done. If the Government's spending envelope up until 2017/18 is met – a big if at the present rate of progress – then spending in many departments will have been reduced by close to a third in real terms. Nothing like it has been seen before in the post war period.

The trouble is that the cuts are being concentrated on rather less than a half the Government's total managed expenditure, this year set at £720bn. Departmental spending accounts for "just" £321bn of this total, and within that, health, schools and overseas aid are protected from the cuts. The element of spending the government is struggling to control is so called "annually managed expenditure", or "unmanaged expenditure as the Chancellor has rechristened it. This includes pensions, welfare and debt servicing costs.

A welfare cap would go someway to getting on top of the problem, but it doesn't answer the escalating costs of the state pension, which no party that values its future would ever attempt to touch, or the ever rising interest bill as the national debt mountain continues to grow.

Low interest rates have meant that these latter costs are in fact £6bn lower now than the Government was originally expecting, despite much higher than planned growth in borrowing. But rates are now rising. It is reckoned that every one percentage point rise in bond yields will add approximately £8bn to the interest rate bill after 5 years.

All of which should add to the sense of urgency in getting on top of the deficit, and getting some decent growth into the economy so as to bolster the other side of the ledger – depressed tax revenues. There was regrettably little sign of it in this statement.